Scandi Daily 10.26

OVERVIEW – This week’s monetary policy decision from the Norges Bank comes into focus, with the Norwegian central bank widely expected to raise rates by 0.25bps to 1.50% on Wednesday. The decision will be watched closely with the Nordic bank to emerge as the first European central bank to boost rates since the onset of the global financial markets crisis. Many will also be watching the close relationship between the NOK and SEK which could diverge significantly in favor of the NOK, especially after the Riksbank disappointed many hawks in the previous week by leaving rates on hold and maintaining their accommodative outlook well into 2010. Monday’s calendar is light with the only release coming in the form of Swedish trade balance at 8:30GMT.

Eur/Sek continues to consolidate off of the 2009 lows from August and we contend that the market is in the process of carving out a medium-term base. Any setbacks are expected to be well supported ahead of 10.05, with a break back above 10.45 to confirm basing prospects and accelerate gains.

Eur/Nok fresh yearly low last Thursday by 8.24 but we feel that the market is finally now exhausted and on the verge of some major upside over the medium-term. Aggressive players can get long at current levels, with a break back above 8.40 accelerating. Only back below 8.30 would delay.

Usd/Sek remains under pressure for now, with the market still locked in an intense downtrend and breaking to fresh 2009 lows towards 6.75 thus far. However, we continue to retain a constructive outlook at current levels, with daily studies looking stretched and warning of a short to medium-term reversal. Look for a break back above 6.84 on Monday to help reaffirm outlook.

Usd/Nok is back under pressure with the market matching the previous week’s trend/2009 lows by 5.51 ahead of the latest minor bounce. However, daily studies are looking stretched and we would not rule out the potential for the formation on a double bottom by 5.50, with a break back above the 5.67 area neckline to confirm and accelerate.

Gbp/Nok finally showing signs of recovery after basing out by 8.82 in the previous week. Daily studies show plenty of room for additional corrective upside, and we look for a push back towards 9.50 over the near-term. Setbacks should now be well supported ahead of 9.00.

Nok/Jpy continues to extend gains now through the latest barriers by 16.50. However, daily studies are showing overbought and we would recommend that bulls proceed with caution. Short-term support comes in by previous resistance at 16.50 and a break below this levels would warn of a bearish reversal.